When you sign the closing documents for a mortgage, you agree to make your mortgage payment by the first of the month. The lender considers the date you made your payment as the date it received, and sometimes processed, the payment. This can sometimes take a week to 10 days after you remit the payment. Technically, your payment is late if the lender receives it after the first of the month.
A Grace Period is Free of Fees
The grace period is usually a 15-day window that allows you to make your payment without receiving a late fee from the mortgage lender or loan servicing company. A late fee is a percentage of your loan amount and may be subject to lender- or state-imposed caps. For example, Fannie Mae guidelines limit a late fee penalty to 5 percent. Even thought you do not pay a late fee, lenders may record your payment as late in their records if paid during the grace period. However, this is for purposes of collecting payment should you exceed your grace period and it must contact you for payment.
Post Grace Period Payments
A payment made after the grace period should include the late payment, since some lenders consider payments that do not include the late fee as partial payments. Lenders may return or may not apply a payments to your account if it covers only the regular monthly payment. If you do not include the late fee by the end of the month, the payment becomes a missed payment and the lender designates it as a 30-day late payment.
Preventing Late Penalties
Submit your payment via the Internet, pay-by-phone service or certified mail so that you have proof of payment in case the lender does not process it until after your grace period or after the end of the month. Certified, wired funds can also be sent up until a specific hour on the due date, the last day of your grace period or the 30-day mark. Ask you bank about the cost and time cut-off for wiring funds. You also must obtain wiring instructions from your mortgage lender to ensure payment reaches the right destination.
Thirty-Day Lates Bad For Credit
Lenders report payments made after 30 days from the due date to credit agencies, which causes a significant drop in credit scores. The loan is technically in default at that moment and the lender may begin the countdown toward foreclosure, sending you notices of default and foreclosure. Lenders usually start making calls to develop repayment strategies, first. When a payment is 90 days late, most lenders initiate the foreclosure process by serving official notice according to state law.
Simple Interest Mortgages
Most mortgages accrue interest monthly, so there is no additional charge when paying by the 15th of the month. However, some mortgages, called simple interest mortgages, accrue interest daily, which means that every day the payment is late the payment grows because interest continues accruing each day. Home equity loans are an example of this type of mortgage. Before making a late payment on a simple interest mortgage, contact the lender to ensure that your payment accurately reflects the amount due.